Moneycontrol PRO
Upcoming Webinar:Join us for 'The Future Techshot' on Sept 22, 10:30am to gain insights into role of tech in streamlining businesses. Register Now!
you are here: HomeNewsPolitics

What is special category status and why is Andhra Pradesh so intent on acquiring it?

The BJP-led government at the Centre and the Telegu Desam Party government at the state have launched scathing attacks at each other over the issue and there is no telling what course it will take in future, as neither of the sparring parties is close to a deal.

February 13, 2019 / 08:18 AM IST
N Chandrababu Naidu

N Chandrababu Naidu

The Andhra Pradesh special category status debate has induced political potshots once again. The BJP-led government at the Centre and the Telegu Desam Party government at the state have launched scathing attacks at each other over the issue and there is no telling what course it will take in future, as neither of the sparring parties is close to a deal.

The genesis

The clamour for the special category status began back in 2014, after Telengana was born, and Andhra Pradesh had to part with its golden goose – Hyderabad. The state had sought the status since its revenue generation was affected and needed special benefits to attract more investment.

The Manmohan Singh government at that time conceded to the demands. Interestingly, back then there was minimal resistance to this idea and all parties took the decision positively, including the then opposition Bharatiya Janata Party.

Though the BJP had agreed on conferring the special category status to Andhra Pradesh, trouble brewed when the 14th Finance Commission decided to do away with the distinction between special and general category states since it began considering the backwardness of states to process any transfer of funds. This meant that the Centre would deal with interstate inequalities through tax devolutions and grants.

Close

The changes introduced also saw Andhra Pradesh become one of the few beneficiaries of the revenue deficit grant, given only to states where tax devolution proved inadequate in bridging the gap.

A special package was offered to the state by the new government which included promises of setting up a railway zone, steel plant, port, and 90 percent central funding, plus industrial incentives similar to entitlements enjoyed by special category states, to name a few.

Now, though the state's Chief Minister Chandrababu Naidu accepted the offer readily at first, his stance changed gradually when the promises could not live up to the expectations, primarily because of poor execution.

Echoing the same, Prime Minister Narendra Modi recently said while addressing a public rally that: "Our government gave to Andhra Pradesh much more than what was mentioned in special status. CM of Andhra Pradesh acknowledged this package but took a U-turn as they failed to use the funds in an appropriate way and were not able to develop the state."

Naidu, however, contended that he only agreed to the deal because the BJP leaders had misled him on the special package deal.

Now that we know what was promised, let’s look at what conferring a special category status would have entailed and why the incumbent minister insists on acquiring the same.

The concept of a special category state came into being in 1969 with the 5th Finance Commission aiming to provide central assistance and tax breaks to disadvantaged states.

Initially, Assam, Nagaland, and Jammu & Kashmir were granted the status. Eight other states were added in the following years (Arunachal Pradesh, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Tripura, and Uttarakhand), with Uttarakhand being the last to be granted this status in 2010.

Here are some features any state seeking the status must have as per earlier laws :

(i)                Hilly, difficult terrain

(ii)               Low population density or large tribal population

(iii)              Strategic location along borders with neighbouring countries

(iv)              Economic, infrastructural backwardness

(v)               Non-viable nature of state finances.

And, to understand why Andhra Pradesh is so intent on acquiring the status, let’s look at the advantages of getting the special category status.

• Preferential treatment in government assistance and tax devolution

• Excise duty concessions, which mean more industries willing to set up manufacturing units in these states.

• Lesser budget constraints as the central transfer is high

• Debt swapping and debt relief schemes, which help in reducing the average annual rate of interest

• Thirty per cent of Centre’s gross budget goes to special category states

• In Centre-sponsored schemes and external aid, these states get 90 percent grants and 10 percent loans. For other states, only 70 percent central funding is received in the form of grants.
Jagyaseni Biswas
first published: Feb 13, 2019 08:13 am

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark